1986 (1) TMI 369 - HC - VAT and Sales Tax

Summary

Issues Involved:
1. Classification of GI pipes under the KST and CST Acts.
2. Binding nature of the Government of India's letter on the authorities under the KST Act.
3. Lawfulness and enforceability of the Commissioner's directions under section 3-A of the KST Act.

Issue-wise Detailed Analysis:

Re: Point No. 1: Classification of GI Pipes

The primary issue was whether GI pipes fall under entry 2(a)(xi) of the Fourth Schedule to the KST Act and section 14(iv)(xi) of the CST Act as "steel tubes." The assessee argued that galvanization of steel tubes does not transform them into a different commercial commodity, while the revenue contended otherwise.

The court examined the definitions of "galvanization" and "galvanize" from various dictionaries and technical treatises, concluding that galvanization is a process to coat steel tubes with zinc for protection against corrosion without changing their essential character. The court emphasized that in common parlance and commercial sense, GI pipes are still considered steel tubes.

The court referenced several Supreme Court rulings, including Dunlop India Limited v. Union of India and Indo International Industries v. Commissioner of Sales Tax, which established that the popular and commercial meaning of terms should be used in interpreting tax statutes. Applying these principles, the court held that GI pipes are indeed steel tubes as per section 14(iv)(xi) of the CST Act and the corresponding entry in the KST Act.

The court also noted that the omission of the term "galvanized" in section 14(iv)(xi) of the CST Act was not deliberate and did not exclude GI pipes from being classified as steel tubes. The court found support in the practices of other states and the opinion of the Directorate General of Technical Development, which also classified GI pipes as steel tubes.

Re: Point No. 2: Binding Nature of Government of India's Letter

The second issue was whether the letter dated 20th November 1973, from the Government of India, directing that GI pipes be treated as steel tubes, was binding on the authorities under the KST Act. The court examined the letter and concluded that it was not a binding direction under the CST Act or an administrative direction under Article 256 of the Constitution. Therefore, it was not obligatory for the Karnataka authorities to comply with it.

Re: Point No. 3: Lawfulness and Enforceability of the Commissioner's Directions

The third issue concerned whether the Commissioner had issued lawful directions under section 3-A of the KST Act to treat GI pipes as steel tubes, and whether these directions were enforceable on the principle of promissory estoppel. The court found that the Commissioner had indeed issued such directions, which were lawful and binding on him and his subordinates. The court held that these directions should be enforced based on the principle of promissory estoppel, as elaborated by the Supreme Court in Motilal Sugar Mills v. State of Uttar Pradesh and Union of India v. Godfrey Philips India Limited.

However, the court also noted that the Commissioner had the power to withdraw these directions, which he did on 7th May 1979, stating that all earlier circulars stood abrogated. The court upheld the validity of this withdrawal, referencing the decision in S.N. Gondakar v. Commissioner of Commercial Taxes.

Conclusion:

The court allowed the appeal, set aside the order of the Commissioner of Commercial Taxes, and restored the order of the ACCT, which had granted exemption to the assessee on the turnover of GI pipes. The court directed the parties to bear their own costs.